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Is a loss leader sustainable?

As Rashima Karden and Bill Dunbar waited to present their case to Zap Electronics CEO Jenna Savas, uncertainty failed to unnerve them. They knew their decision was sound.

Karden, marketing director, worked with Dunbar, head of retail operations, to create a customer acquisition program centered on deeply discounting its new ZapAccess Tablet. Sales of the tablet were initially robust—and mostly to existing customers—but had fallen off once its main competitor launched its next generation tablet. The goal was to get new customers into the store to purchase the ZapAccess, knowing that the company could make up the margin loss on higher-margin items like the warranty and accessories. Several core apps would also bring in solid revenue.

The program was slated to be a weekend-long promotion. Sales of the tablet were better than expected, as were accessory and services sales. So much better that Savas wanted a reforecast of sales projections and an updated marketing plan. “Clearly, the demand is there,” she said.

Karden and Dunbar had several potential options that included permanently lowering the price of the ZapAccess tablet. Doing so, however, might require changes to the tablet that would lower production costs, but also decrease product quality. The tablet certainly could sell with a slightly lower margin than its current full price provided, but it wasn’t sustainable as a loss leader. Additionally, there was some social media backlash by existing customers complaining that they felt duped by paying full price just weeks earlier.

The two executives met with the production and marketing teams, ran some numbers, and prepared a plan to present to Savas. What decision could they present that would be so sound as to instill the confidence they had waiting for their meeting with Savas?

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